If you’ve gone to college in America, you’ve probably got some student loan debt. For many, student loan debt feels like something you’re dragging around for the rest of your life and can never get rid of no matter how hard you try. The idea of canceling student loan debt has been floated, but did you know that it can actually be good for economics and politics? I had no idea.
Bharat Ramamurti, a member of the COVID-19 Congressional Oversight Commission, created a Twitter thread about student loan forgiveness that quickly went viral.
Broad student loan debt cancellation via executive order is good economics and politics. A thread (with lots of data). 1/
— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
First, it’s important to remember that *a lot* of people have student loan debt — 45 million or so. For context, 25 million people benefit from the EITC and 38 million people get SNAP. Fundamentally, one of the benefits of debt cancellation is that it helps a lot of people. 2/
— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
Ramamurti is saying that it will help even more people than the food stamp program SNAP and low-income worker tax benefit EITC.
Canceling student loan debt has positive income effects. The median borrower making payments has a monthly payment of more than $200. Canceling debt could reduce or eliminate those payments — which is like sending those people a check every month. 3/https://t.co/WOmrw3hxOT.
— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
People who are paying money towards student debt could instead be spending that money in the economy.
Student loan debt cancellation also has positive wealth effects. Student debt loads are part of the reasons we’re seeing declining home ownership and small business formation rates. Canceling the debt will have mean more jobs and growth. 4/https://t.co/PqyCXePPuO
— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
Getting rid of student loan debt means more people can buy homes or start a small business.
One study has found that canceling all debt would have a big stimulative effect. The impact would be less if less debt were canceled, but debt cancellation one of the relatively few ways to really stimulate the economy without Congress. 5/https://t.co/UeCHtONGh2
— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
The latest data and research also show that broad debt cancellation will help narrow the racial wealth gap. 6/https://t.co/Wtxkf6HNXN
— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
Won’t people be taxed on their canceled debt? No, there are several ways to avoid that, including:
-Deem forgiveness as a disaster payment relating to Covid under IRC 139
-Deem it a qualifying scholarship under IRC 117
-For insolvent taxpayers, exclude under IRC 108 7/— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
He suggests some ways to avoid giving struggling student loan holders a tax bill.
For those concerned about “targeting” student debt cancellation, you can vary the amount of debt cancelled by income level, should you want to. If you’re concerned it won’t help people who never attended college, you could pair it with executive actions that do that. 8/
— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
Right, we are more concerned about helping a teacher with $50,000 in college debt than a practicing surgeon with $100,000 in college debt.
Some say debt cancellation isn’t well-targeted. Compared to what? Other approaches to provide big stimulus will require Congress, and if that requires negotiating with a R Senate, debt cancellation is likely to be more targeted than the package emerging from those talks. 9/
— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
People who make under $50,000 and people who don’t have a college degree are the strongest supporters of student debt cancellation.
The bottom line is that broad debt cancellation via executive order is popular, economically potent, and — most importantly — life-changing for millions of Americans struggling through this crisis. We can’t let the perfect be the enemy of the good. END
— Bharat Ramamurti (@BharatRamamurti) November 16, 2020
Will canceling student loan debt be the solution to all our problems. No. But it can be a great start and change many peoples’ lives in a positive way.